The loss of 105 000 jobs in the manufacturing sector in the second quarter of 2018 highlights subdued domestic demand for industry, and uncertainty over global growth, according to Steel and Engineering Industries Federation of Southern Africa Chief Economist Michael Ade.

Ade said local manufacturing companies were operating with excess capacity and at sub-optimum production levels, as they tried to minimise input costs, including “uncontrollable fuel and energy costs”.

The official unemployment rate rose to 27.2% in the second quarter of 2018, mostly on the back of the manufacturing and services sectors shedding jobs, the Quarterly Labour Force Survey by Statistics South Africa revealed on Tuesday.

Despite adding 58 000 jobs in the first quarter, manufacturing has been under pressure for some time. Boosting industrialisation was at the centre of President Cyril Ramaphosa’s economic promises while campaigning for the ANC top job in 2018.

Manufacturing contributed to negative GDP growth of 2.2% in the first quarter of 2018, with the sector contracting by 6.4%.

The Absa purchasing managers’ index (PMI), one of the key indicators of performance in the manufacturing sector, fell to the lowest level in three months in June, to below the neutral 50 mark.

Manufacturing uptick in July

There is, however, hope for the key sector in the third quarter, with the Absa PMI rising to 51.5 index points in July, up from 47.9 in June.

“This suggests that the manufacturing sector got off to a good start in the first month of the third quarter of 2018,” the bank said in a note on Wednesday.

The bank commented that the recovery was driven by an improvement in demand, as reflected by the increase in the new sales orders index.

Absa also acknowledged that manufacturers were battling with soaring costs.

The purchasing price index rose for a second consecutive month in July and is currently at the highest level since early 2016.

“A key driver of the recent upward trend has been several straight months of hefty fuel price increases. Fortunately, the fuel price remained virtually unchanged at the start of August,” the bank explained.

Jobs summit

Seifsa said it was now shifting its focus to the upcoming jobs summit, saying the solution to unemployment did not only rest with government.

“Accordingly, opportunity-driven (rather than necessity-driven) entrepreneurship should be encouraged since it caters largely for sustainable informal employment,” Seifsa‘s Ade said.

A date for the jobs summit is yet to be finalised, and parties at the National Economic Development and Labour Council (Nedlac) believe it will be held between mid- and end September.